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1. A bond with a coupon rate of 8% makes semi-annual coupon payments on January 15 and July 15 of each year. The Wall Street Journal reports the ask price for the bond on February 16 at 101% of the par value. The par value of the bond is 1000. What is the invoice price of the bond? The coupon period has 182 days. (3 marks)

2. Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $2 million per year to beneficiaries. The yield to maturity on all bonds is 16%. If the duration of 5-year maturity bonds with coupon rates of 12% (paid annually) is 4 years and the duration of 20-year maturity bonds with coupon rates of 6% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? (5 marks)

3. A bond with a coupon rate of 8% makes semi-annual coupon payments on January 15 and July 15 of each year. The Wall Street Journal reports the ask price for the bond on February 16 at 101% of the par value. The par value of the bond is 1000. What is the invoice price of the bond? The coupon period has 182 days. (3 marks)

4. Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $2 million per year to beneficiaries. The yield to maturity on all bonds is 16%. If the duration of 5-year maturity bonds with coupon rates of 12% (paid annually) is 4 years and the duration of 20-year maturity bonds with coupon rates of 6% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? (5 marks)

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